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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member): - 1. Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2006-07 contest the final assessment order dated 24/08/2010
Gartner India Research & Advisory Services Pvt. Ltd. Assessment Year 2006-07 passed by Ld. Assistant Commissioner of Income Tax-10(1), Mumbai [AO] u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 pursuant to the directions of Ld. Dispute Resolution Panel-1, Mumbai u/s 144C(5) dated 14/07/2010 on certain grounds of appeal. In the appeal, the assessee has challenged the additions on account of Transfer Pricing Adjustment as well as non-Transfer Pricing adjustments, as made by lower authorities. Transfer Pricing Grounds 2.1 Although the assessee has raised as many as 9 grounds of appeal, however, Ld. Sr. Counsel for assessee, Shri Farrokh V. Irani, has submitted that the assessee, under the appeal, is pitching only for the exclusion of 4 comparable entities since the exclusion of the same would bring the mean margins of comparable entities within the tolerance range of +5% as provided u/s 92C(2). It has been submitted that these comparable entities, in various orders of the Tribunal, have been found to be non-comparable to entities having similar functional profile as that of the present assessee. Keeping in view the said submissions, henceforth, our adjudication shall remain confined to selection of these comparable entities only. Hence, other issues raised under the Transfer Pricing grounds are not being taken up, as per the submissions of Ld. Sr. Counsel. 2.2 The assessee is stated to be engaged in providing research support / marketing support services to its Associated Enterprise [AE] namely M/s Gartner Ireland. These services have been classified as ITeS / BPO services. During the year under consideration, it earned revenue of Rs.602.58 Lacs by providing research support services to its AE and in its Gartner India Research & Advisory Services Pvt. Ltd. Assessment Year 2006-07 Transfer Pricing [TP] Study, benchmarked the same using Transactional Net margin Method [TNMM] as the Most Appropriate Method [MAM], Profit Level Indicator [PLI] being Operating Profit /Cost. The functional profile of the assessee has been accepted to be ITeS Service Provider. 2.3 The assessee, in its TP study, reflected own margin of 13.24% as against mean margin of 10.57% of eleven entities based on three years weighted average PLI. However, finding fallacy in the same, Ld. TPO conducted fresh search using Prowess and Capitaline databases and identified 13 comparable entities with mean margin of 24%. Although the assessee agitated the selection of comparable entities, however, the same could not convince Ld. TPO. Finally, 14 entities were accepted in final set of comparable with mean PLI of 23.33%. In the process of selection, most of the entities selected by the assessee got rejected. A relief of 1.96% was provided on account of working capital adjustment and the net PLI was worked out to be 21.36%. Applying the same, Ld. TPO proposed Transfer Pricing [TP] adjustment of Rs.43.22 Lacs vide its order u/s 92 CA (3) dated 20/10/2009. 2.4 Incorporating the proposal of Ld. TPO, draft assessment order was passed on 30/11/2009, which was subjected to objections before Ld. DRP. However, Ld. DRP confirmed the adjustment and consequently, final assessment order was passed on 24/08/2010 wherein the assessee was saddled with aforesaid adjustment. Aggrieved, the assessee is in further appeal before us.
Gartner India Research & Advisory Services Pvt. Ltd. Assessment Year 2006-07 2.5 The Ld. Sr. Counsel, placed on record, a chart to submit that the assessee is pitching for exclusion of following 4 entities, relying upon various orders of Tribunal for same Assessment Year rendered in cases of assessees having similar functional profile: - No. Name of Entity PLI (%) (i) Asit C.Mehta Financial Services Ltd. 34.52 (ii) Goldstone Infratech Ltd. 29.01 (iii) Maple eSolutions Ltd. 32.66 (iv) Vishal Information Technologies Ltd. 48.03 Our adjudication to the same would be as follows: - (i) Asit C.Mehta Financial Services Ltd. (earlier known as Nucleus Netsoft & GIS India Ltd. The Ld. AR has objected to inclusion of this entity on the ground that this entity was functionally not comparable to the assessee since it was engaged in providing software development services as evident from its Annual Report. It has further been submitted that segmental results of the entity are not available and therefore, it could not be treated as a comparable entity. Our attention has been drawn to catena of decision of various benches of the Tribunal to fortify the submissions. Upon due consideration, we find that Hyderabad bench of Tribunal, on similar factual matrix, in HSBC Electronic Data Processing India Ltd. V/s CIT [38 Taxmann.com 141] and in another decision titled as TNS India Pvt. Ltd. V/s ACIT [48 Taxmann.com 80] has directed for exclusion of this entity on the ground of change of business model. Both the decisions are for same AY and rendered in the context of assessees having similar
Gartner India Research & Advisory Services Pvt. Ltd. Assessment Year 2006-07 functional profile. The other decision as placed on record also support the exclusion of this entity. Facts being pari-materia the same, we direct for exclusion of this entity. (ii) Goldstone Infratech Ltd. (earlier Goldstone Teleservices Ltd.) Similar arguments have been advanced to submit that this entity fails export turnover filter of 25% as applied by Ld. TPO. It has been submitted that BPO division of the entity constitute insignificant portion of overall functional profile and could not be treated as comparable entity. Reliance has been placed on catena of decision of various benches of the Tribunal to fortify the submissions. We find that Hyderabad bench of Tribunal, on similar factual matrix, in HSBC Electronic Data Processing India Ltd. V/s CIT [38 Taxmann.com 141], vide para 10.1 of the order, directed for exclusion of this entity on the ground that foreign exchange revenue were less than 1% of total turnover of the entity and the revenue from BPO was falling over a period of three years. The other decisions as placed on record, also support the exclusion of this entity. Respectfully following the same, we direct for exclusion of this entity. (iii) Maple eSolutions Ltd. Reliance has been placed on the decision of HSBC Electronic Data Processing India Ltd. V/s CIT [supra] for the submissions that this entity was engaged in providing call center services for which FAR analysis would be quite different in contrast to the entities engaged in providing BPO services. It has further been submitted that this entity has significant
Gartner India Research & Advisory Services Pvt. Ltd. Assessment Year 2006-07 intangible assets of more than 21% of total fixed assets which would make this entity non-comparable. We find that the coordinate bench, at para 12.1, on similar factual matrix, has directed for exclusion of this entity on the ground of unreliability of data. Reliance has been placed on the decision of Hyderabad bench as well as Delhi Bench to arrive at such a conclusion. Therefore, following the consistent view of the Tribunal, we direct for exclusion of this entity. (iv) Vishal Information Technologies Ltd. Pitching for exclusion of this entity, it has been submitted that this entity has outsourced its work instead of carrying out the work by itself which is evident from its Annual Report. The business model being different, Ld. Sr. counsel has pleaded for exclusion of this entity. We find that Hon’ble Bombay High Court in the case of Pr.CIT V/s PTC Software India Pvt. Ltd. [ITA No. 598 of 2016] has confirmed the stand of the Tribunal in excluding this entity on the ground of non-comparable business model. The other decisions as placed on record also supports the exclusion of this entity. Respectfully following the same, we direct for exclusion of this entity. 2.6 In results, the Transfer Pricing Grounds stands partly allowed to the extent of exclusion of these 4 comparable entities. The Ld. TPO / Ld. AO is directed to recompute the TP adjustment, if any. Non-Transfer Pricing Grounds 3. In Ground No. 2, the assessee is aggrieved by adhoc disallowance of 20% of communication expenses. During assessment proceedings, it
Gartner India Research & Advisory Services Pvt. Ltd. Assessment Year 2006-07 transpired that the assessee debited an amount of Rs.18.68 Lacs on account of communication expenses reimbursed to its employees. The Ld. AO proposed disallowance of 40% against the same to account for personal element. The Ld. DRP reduced the same to 20%. It has been admitted position before us that the issue stood squarely covered in assessee’s favor by the decision of this Tribunal in assessee’s own case for AY 2004-05 order dated 12/04/2013, a copy of which has been placed on record. Factual matrix being similar, respectfully following the earlier decision of this Tribunal in assessee’s own case, we delete the adhoc disallowance of 20% as sustained by Ld. DRP and allow this ground of appeal
4. Ground No. 3 contest levy of interest u/s 234, which being mandatory & consequential in nature, would not require any adjudication on our part. Similarly, ground No. 4 contest initiation of penalty proceedings. The same being premature, also do not require any adjudication on our part.
5. The appeal stands partly allowed in terms of our above order.
Order pronounced in the open court on 30th July, 2019.